Netflix shares leap above raised targets

Online movie firm remains a controversial play among analysts

DanGallagher

Netflix shares soared on the company’s first-quarter results, but many on Wall Street remain cool on the stock, given the high valuation and competition.

SAN FRANCISCO (MarketWatch) — Netflix Inc. saw its shares leap above many of the raised price targets set by Wall Street analysts on Tuesday following the company’s strong earnings report.

Netflix
NFLX, -0.29%
has long been a controversial stock, drawing sharply contrasting views on its future as a movie and TV streaming service that competes directly — in some cases — with large, established cable carriers and media companies.

Netflix shares were up more than 23% to $215 by early afternoon on Tuesday.

Other analysts held firm to their views that Netflix remains wildly over-valued, given its competitive situation in a fast-changing business.

“Simply put, we do not believe that Netflix’s current pricing model will allow the company to generate sustainable profits, although it will allow for sustainable growth,” wrote Michael Pachter of Wedbush Securities who rates the stock as underpeform with a $65 price target.

By contrast, Mark Mahaney of RBC Capital rates the stock as outperform, and boosted his price target to $250 from $210.

“We continue to believe that Netflix has achieved a level of sustainable scale, growth, and profitability that isn’t currently reflected in its stock price,” he wrote to clients.

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At least ten brokers raised their price targets on Netflix following Monday’s report, with the average increase about 22%, according to data from Thomson Reuters.

The changes pushed the Street’s median target price up from $175 before the report to about $183 now. Current targets range from a low of $62 to a high of $254.

At its current level, the stock is above most price targets, with about nine brokers holding targets at $220 or higher.

Jordan Rohan of Stifel Nicolaus maintained a hold rating and no price target on Netflix following the report. He said Netflix “is creating competitive advantage with exclusive content during a period when its competition appears inept.” He noted that Netflix has been able to expand margins even as it faces competition from companies such as Amazon and Hulu which are also bidding for content.

“As the habit of binge viewing grows and the practitioners become mainstream consumers, we believe Netflix will be a principal beneficiary, thereby reducing churn and sustaining the business value,” Rohan wrote to clients, adding that the stock’s current value “prices in much of the good news.”

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